Need a Revocable Living Trust in New Jersey?

Revocable living trusts are legal entities that allow you to consolidate your assets while helping to direct the distribution of those assets upon your death. Throughout your life, you can easily move assets into or out of a revocable living trust. This helps to increase flexibility and control, features that are lacking in other types of trusts.

Revocable living trusts are versatile documents that allow the grantor, the creator of the trust, to install a number of different conditions and protections that will help to ensure the grantor’s wealth passes onto the next generation. In this article, we explore some of the different provisions and functions of a revocable living trust and the benefits that these provisions can provide.

What is a Revocable Living Trust?

A revocable living trust is a legal entity that can essentially house someone’s assets and direct those assets to one’s heirs upon death. A revocable living trust can hold a house, real property, LLCs, and tangible personal property. A revocable living trust can also account for assets such as bank accounts and life insurance by simply changing the beneficiary designation on those accounts to the trust. 

For example, someone who has a life insurance policy has a named beneficiary assigned to inherit that money. If they had a revocable living trust, they could simply name the trust as the beneficiary of the life insurance policy and then, once the policy is paid out, the funds will go into the trust and be distributed accordingly from there.

With a revocable living trust, the grantor retains complete control over the assets, can continue to use the assets, and can buy and sell assets just as they would if the assets were not in the trust.

By contrast, irrevocable trusts have a high degree of permanence that is absent in revocable living trusts. Once an asset is put into an irrevocable trust, the grantor effectively loses control and ownership of the asset. The asset will remain in the trust until it is inherited by and distributed to the beneficiary. The grantors themselves would be unable to recover the asset from the irrevocable trust.

There are some benefits that an irrevocable trust can offer that a revocable trust cannot, but that is beyond the scope of this article. For more clarity on that subject, we recommend speaking with an experienced estate planning attorney.

What Protections Can a Revocable Living Trust Offer?

A revocable living trust can contain numerous provisions that could help someone’s heirs when it comes time to inherit. Some of the more important provisions include:

1. A spendthrift provision
2. Substance abuse/gambling provisions
3. Delayed distributions
4. Provisions pertaining to the powers of the trustee.

When used together, these provisions can create a safety net for someone’s heirs that will help them inherit what is rightfully theirs.

Spendthrift Provision

Spendthrift provisions help to protect someone’s assets from the creditors of their heirs. The purpose of a spendthrift provision is to state that the creditors of one’s heirs have no right to make a claim against the heir’s share of a trust estate before the heir receives their inheritance.

For example, Billy owes his creditors $20,000, and Billy’s father has left him $20,000 in his trust. Under a spendthrift provision, Billy’s creditors cannot take the inheritance straight out of the trust. This can be helpful because it can give your heirs a chance to repay their debts so they can enjoy the inheritance that they are entitled to.

Without a spendthrift provision, creditors could usurp, or seize, the trust funds before the heirs have a chance to enjoy them. This added layer of protection can also help the grantor. For someone who has spent their life amassing wealth, the last thing they would want is for a creditor to cut the line and snag an heir’s inheritance right out from under them.

Substance Abuse/Gambling Provision

Including a provision to account for potential substance abuse or gambling tendencies of heirs can be a very wise move, even if the grantor thinks their heirs would never have problems in these areas.

If a revocable living trust accounts for these situations, then the trustee will have the power to hold that heir’s inheritance in the trust until they get the help they need. In the meantime, the trustee can continue to use the heir’s inheritance for the maintenance and well-being of the heir. For example, the trustee could help pay for the heir’s rent, schooling; drug, alcohol, or gambling treatment; or anything else. At the same time, the grantor can withhold funds in the trust so they are not wasted on gambling debts, drugs, or alcohol.

Delayed Distributions

A delayed distribution is a common feature of a revocable living trust, allowing a grantor to specify conditions or milestones that must be met before an heir can inherit their share. This can be helpful to ensure heirs do not inherit a large sum of money before they are ready to handle it responsibly. 

Commonly, the grantor will choose three milestones that must be reached, permitting the heir to inherit one-third of their inheritance after each milestone. Those milestones can be ages (commonly 23-27), educational achievements (e.g. a college or graduate school degree), professional achievements (e.g. three-plus years of experience in a professional field), or nearly anything else that the grantor may want.

The goal is to pause distribution until the heir has matured and begins to prioritize their expenses properly. Just as someone probably would not want their estate assets to be lost on a college football game, they would also probably not want their estate assets to be lost to the shenanigans of a college student.

Powers of the Trustee

A trustee can be granted a wide range of authority that will help them optimize their management of a revocable living trust. The trustee can have great control over the assets in the trust and can actively manage the assets in a way that helps to optimize the net value of the trust estate.
A trustee may have control over real property, stocks, shares in a business the grantor may have owned, etc. By giving the trustee broad powers over the trust assets, the trustee can buy, manage, and sell assets in a way they feel respects the best interest of the trust and the heirs. 

If the grantor owns a house in a neighborhood where property values are decreasing, the trustee can be granted the authority to sell that property before the value decreases further. Similarly, if the grantor owns stock in Company A and Company B, the trustee can sell shares of Company B and buy more shares in Company A if they have reason to believe that could be a shrewd investment. 

In short, the trustee can have great power and thus manage the trust closely in a way that helps to keep the trust currently while helping to maximize the value of the estate. Rather than just sitting back and letting the dice fall as they may, the trustee can play a much more active role in their revocable trust, which ideally could lead to a stronger overall financial value. 

Contact Rosenblum Law Today

The purpose of creating an estate plan is to ensure they receive what is rightfully theirs. If you are considering creating an estate plan, it may be best to consider a revocable living trust because it can offer immense benefits that could pay dividends later on.

To discuss whether a revocable living trust is best for you, and for expert guidance through the process, reach out to our experienced estate planning team. Contact Rosenblum Law today for a free estate planning consultation.